Advantages of a second credit card in hand

When people apply for their first credit card the motive is most likely to have ease of shopping (without the need to carry cash) and build a good credit history. But the second time around the objective of getting a credit card changes to a great extent. While choosing the second card people look at rewards and benefits and a higher credit limit.

If it’s been a year since you had your first card, and if you have been using your card responsibly by paying bills on time and in full each month; it may be time to reap the benefits of a second credit card. But if you are in the habit of maxing out your card, or are already struggling with a huge outstanding balance on your first card, or if you are prone to spending beyond your means then applying for a second card may not be a good idea.

Here are some advantages of having a second credit card

Backup option- Imagine what would happen if your card is lost or stolen! If you want to avoid the hassles of using cash for all your purchases till you are able to resolve the situation then get a second credit card soon. Keep it in a place different from the first card so that it is available when you lose your first card. There may also be times when the store person tells that your card isn’t getting accepted due to technical issues. A back up card always comes in handy when your first card is not available or gets declined.

Rewards- Different credit cards come with different kinds of benefits. Some credit cards offer amazing discounts on dining, some give cash backs on groceries, while some give reward points on online shopping that can be redeemed on other purchases. Travel cards are the best bet if you often buy air tickets. So if your expenditure pattern is tilted towards an area where a card offers special benefits, then having such a card to cover for those specific expenses makes sense. That is why people often choose a second card to take advantage of specific reward schemes on the expenses that they make often.

Improve CIBIL rating-Getting a second credit card often works well for people who are looking at improving their CIBIL rating. Here is how a new card affects your CIBIL score. An important component that affects the calculation of Credit score is the credit utilization ratio. This ratio is calculated by dividing the total debt balance outstanding on all the cards with the total credit limit on all cards that a person owns. Getting a new credit card increases your total available credit limit and therefore reduces the credit utilization ratio. An important point to note here is that this strategy helps in raising the CIBIL rating only when the balance outstanding is not allowed to increase. If the credit card holder uses the second card for small expenses and pays back the amount in full each month, it will bolster the CIBIL rating. However if the new card is seen as an opportunity to spend more and take on more debt, then the increase in debt pile may increase the utilization rate and lower the CIBIL rating.

Deal with emergencies– Having 2 credit cards raises your credit limit. Though you may not use your card upto the limit to ensure that you get a good CIBIL rating, having an option gives you peace of mind that you have something to fall back on in case of emergencies. When a sudden medical situation arises where the credit limit on the first card isn’t enough to make payments, then the second card serves as a saviour.

Some key points to remember when you get your second card

Use the card for small expenses and pay it back in full each month to display responsible credit behaviour and improve CIBIL rating. An inactive card will do no good to your score.

Do not use more than 30% of available credit limit on any of your credit cards.

You now have 2 payment due dates to track. Do not forget to make timely payments, as it is the most important factor that affects your CIBIL rating.

A second credit card raises your purchasing power, offers you several benefits along with an opportunity to improve your credit profile. But keep your spending in check and use the card wisely so that it works in your favour.

 

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Does winning a Lottery affect My Credit Score

Winning a lottery is like a dream come true. If you are one of those lucky few who have won lakhs or crores of rupees in a lottery, you may be wondering its impact on your life. Well, just having the money will not put an end to all your financial woes. How you put it to use is what determines its effect on your financial life. Does winning a lottery affect your CIBIL rating in any way? Let’s find out.

Correlation between credit score and wealth

The income level of an individual or his bank balance has no effect on his credit score. People with a high net worth may not necessarily have a high credit score. The credit score calculation primarily factors in one’s payment history and credit card usage behaviour. So even if a person has a huge bank balance, he will not have a good CIBIL rating unless he makes timely payment of his loan EMIs and credit card bills.

The wealth of an individual may be taken into account when a person seeks approval of a loan application. Banks do check an individual’s bank balance and income level apart from the credit score to determine whether the person has the capacity to repay the loan. Hence winning a lottery may increase your ability to seek loan approvals.

Here is how you can use the money to improve CIBIL score

Though winning a lottery does not have a direct impact on your CIBIL rating, it does give you an opportunity to raise your score by other means. Here is what you can do with the money to improve CIBIL score.

  1. Pay back outstanding dues

If you were unable to clear your outstanding dues in the past because of lack of funds, you would surely have a bad credit history. Late payments, collections, charge offs and other such negative remarks brings down one’s CIBIL rating. Now is the time to put your money to good use. Contact the bank and discuss that you have sufficient money to repay them. Request them to remove your name from the bank’s loan defaulter’s list. Negotiate with them if they can remove negative remarks from the credit report if you clear all past debts.

  1. Reduce credit utilization ratio

Credit utilization ratio plays an important role in CIBIL score calculation. A high utilization shows an over dependence on credit and reduces your credit score. By using the funds to pay off your credit card outstanding balances you can reduce this utilization ratio and work towards improving your credit score. Make sure you do not use more than 30% of your available credit limit. Keeping low utilization levels helps boost CIBIL rating.

  1. Exhibit good credit behaviour

Since you have sufficient money in your bank account, make sure you pay all your bills and EMIs on time. By exhibiting responsible behaviour and making on time payments one can build positive credit history.

What is the Meaning behind Your Credit Score Range?

There is sense of comfort and satisfaction when you know that your credit score falls within the top range. However, what’s the top range exactly? How does it affect your creditworthiness?

A lot of people are unaware of the different types of credit score ranges and how they affect your credit profile.

Taking the CIBIL score range as an example for this post, we will take a look at the different ranges that fall within its entire spectrum.

CIBIL Score Groups

CIBIL scores on a scale of 300 and 900. So, a score of 300 will be the lowest, and 900 the highest. This range is divided into small groups:

750-900

If your score is above 750 then you won’t have any trouble in securing a personal loan, home loan, etc. with a bank of your choice. You can also easily get attractive interest rates with a score in this group.

Most of the people whose scores fall this in this category have three common habits:

  • They always pay their credit card bills and EMIs on time.
  • They have multiple credit cards but their credit utilization is low. So, if their credit card limit is Rs. 5 lakhs, they will use less than Rs. 1 lakh of the same.
  • They don’t close their oldest bank accounts and try not to open new ones

600-749

If your score falls under this range, then you can consider your score “good” but not excellent. What it means is that you are a responsible credit user and know how to manage your money. You try to pay your bills on time but may occasionally be late for a payment or two.

500-600

Any score between 500-600 is a fair score. So, although it’s not a low CIBIL score, it’s not good either. From the perspective of your creditworthiness, you shouldn’t be happy with a score in this group.

Although you can apply for a loan with a “fair” score, it’s not recommended. This is because there is still a good chance of facing rejection. If you apply for a loan multiple times in a short period, then it can actually damage your score further. So, what you should ideally do is work on the score first. Once you have moved from a “fair” score to at least “good”, you can apply for the loan. Not only now you will be able to easily secure it, you can also try to get lower interest rates and more comfortable terms and conditions.

Below 500

A CIBIL score below 500 is considered a low CIBIL score, or rather a “poor” CIBIL score. As you can expect, this means that you will only have problems such as:

  • Obtaining any kind of loan itself can become extremely challenging. Even if you are able to convince a lender to overlook the score, you will have to pay a high interest rate that will make the proposition not worth it.
  • As many finance companies have started screening the job applications on the basis of the credit score as one factor among many, you can have a tough time securing a job too.
  • A poor score means that you will be under high stress and financial insecurity.

0 Credit Score

If your credit report shows “0” credit score, then it’s natural to be worried. However, there is no reason for that because, in most credit reports “0” doesn’t signify the lowest score, but rather than the lack of credit history. In other words- if you have never taken credit in any form, such as credit cards, loans, etc. in your life, it means there is no credit information available, and hence no credit score yet. Once you are under any kind of debt, your lender will submit the information to the credit rating agency and your credit report will be created.

Meaning of Credit Score Range

By matching your credit score with the different groups given above you can easily self-assess your creditworthiness. If your score is poor or even just “fair”, it’s best if you can take it up a notch. This is because your credit report is extremely important, and you should try to keep it in a good condition.

How to Decode One’s Credit Score

The credit score of an individual is increasingly gaining importance in the financial world. It is a measure of the person’s past ability to make timely repayments and effectively manage credit. It is necessary to maintain a strong credit history if one wishes to secure loans. Despite being such an important measure, many people have several confusions with regard to this number. Let us decode what this score is. Here you will find all you need to know about this three digit magical number.

Why is credit score so important?

Even though numerous banks and financial institutions as well as private lenders offer loans for various purposes, it is not so easy to secure loans. The CIBIL score is used by most lending institutions to assess the credit health of an individual before granting credit. Lenders want to be sure of the repayment capacity as well as the intention of the borrower before disbursing the funds. A good CIBIL score is an indicator of good financial health and responsible credit behaviour. While a bad score indicates that the person may default in future. Hence having a good CIBIL score provides easy access to loans. The rate of interest also factors in the borrower’s credit score. A low score increases the risk exposure of the lenders, who then charge a high rate of interest to cover for that risk.

It is also beneficial to have a good CIBIL score when you are applying to jobs in banking and finance sectors. That is because employers feel that a financially disciplined employee will work diligently as well. Hence you may be asked to submit your credit report or score when you apply for jobs. Some insurance companies take your credit score into account while setting the premium. Many landlords too check your score to see whether you have a stable financial history.

What determines your credit score?

The information recorded in your credit report goes on to determine what your score will be. There are 5 main influencers that compose the score. Past repayment track record is the most crucial component among them that accounts for 35% of the score. The utilization ratio on credit cards, average age of accounts, mix of credit and the number of hard enquiries that are made when you apply for new credit are the other factors that contribute to the score. Factors like your age, nationality, marital status, location of address, salary, employment history do not affect the credit score in any way.

Making the EMI payments and credit card bill payments on time greatly helps to improve CIBIL score. Keeping the credit utilization percentage low(that is the balance outstanding on the credit cards as a percentage of the total credit limit sanctioned to you), having a healthy mix of both secured and unsecured credit lines, and applying for new credit sparingly are other ways in which one can improve CIBIL score.

What score is a good score?

A CIBIL score between 750 to 900 will put you in an advantageous position. It is a clear indicator that you have a sound financial condition and you have handled all your past obligations responsibly. Since your chances of default are almost nil in this case, banks will readily offer loans at reasonable interest rates. You can shop around and demand the best rates possible. A score less than 600 puts you in the category of a subprime borrower. It may result in an outright rejection of your loan application. An average score between 600 and 750 gives you limited options. You will be required to pay a premium on interest rates in order to secure an approval. But if you work to improve CIBIL score, and start making timely payments you can surely see your score rising in few months time.

How should I keep track of my credit score?

You can order for your score from any one of the three credit bureaus online. As a practice, check your CIBIL score once every year. If you plan to apply for a new loan in the near future, then check your score at least 6 months prior, to ensure that it is good enough to secure an approval. If your score is low, you will have sufficient time to work on it and improve CIBIL score.